May 4, 2018

The Weekly Gist: The Star Wars Edition

by Chas Roades and Lisa Bielamowicz MD

Happy Star Wars Day! (May the 4th be with you!) We’ve skipped right over spring here in the DC area, and it’s as hot as a summer day on Tatooine today. Thankful we’re sitting here in the AC writing the Weekly Gist, and not going to Tosche Station to pick up some power converters. Here’s hoping it’s cooler where you are.

Lots to cover this week—let’s get right to it.


What happened in healthcare this week—and what we think about it.

BREAKING: Partners makes another move into the insurance business

Just this afternoon Partners HealthCare announced it is in discussions to acquire Harvard Pilgrim Health, a 1.2M member health plan based in the Boston area. This is not Partners’ first health plan acquisition (the system acquired Medicaid plan Neighborhood Health in 2012), but is a much larger move into the insurance business. Facing ongoing competition from lower-cost Steward Health Care and the new threat of Optum’s acquisition of Reliant Medical Group, adding the plan is another step toward enabling Partners to decant lower-acuity volume toward its community hospitals and away from the high-cost academic core. We’ll have more to say on the Partners-Harvard Pilgrim deal as details become available.

The Texas supreme court rules in favor of transparency

In a case that could have broad implications for how insurers negotiate rates, the Texas Supreme Court handed a victory to patients seeking transparency into contracted rates to allow them to better negotiate with providers. The case concerns an $11,000 bill issued to the plaintiff, Crystal Roberts, for a three-hour ED visit to North Cypress Medical Center after a June 2015 car accident. Under Texas law, hospitals may charge uninsured patients a “reasonable and regular rate”. Roberts and her lawyer argued that the bill, which was based on the full chargemaster rate, was well in excess of the price that would have been paid by any insurer for the same services. The court’s ruling reaffirmed that Roberts should have access to negotiated rates as a benchmark, stating that “a hospital’s reimbursements from private insurers and public payers comprise the vast majority of its payments for services rendered. We fail to see how the amounts a hospital accepts as payment from most of its patients are wholly irrelevant to the reasonableness of its charges to other patients for the same services.”

Commentary on the case has centered on its impact on free market forces in healthcare. Many see the ruling as a victory for consumers, moving one step further toward meaningful price transparency to empower decision-making. A second camp views the case as a blow to insurers’ negotiating power and their ability, as private companies, to set prices on behalf of consumers. As it moves forward, expect this case to be a harbinger of the direction of free market forces in healthcare: are consumers’ interests best served by price transparency and individual choice, or by the protection of middlemen like insurers and pharmacy benefits managers who purport to negotiate on their behalf?

A disruptor returns to the fray, taking a different tack

We were surprised to read this week that Zoom+Care, the Portland area urgent care startup, announced a new joint venture with the Aetna to launch an ACO-like product in Oregon. The new product will be offered in the group market in three Oregon counties. The new joint venture is one of a string of partnerships that Aetna has formed with providers across the country to create lower-cost insurance offerings built around a narrow network of risk-bearing doctors and hospitals.

Zoom+Care’s quick return to the risk marketplace after a troubled experience across the past year is surprising. Once hailed as a disruptor in the Pacific Northwest, with its “Genius Bar”-styled clinics, technology-forward consumer access approach and bespoke specialist network, Zoom+Care drew the attention of industry observers nationally (including us) as a harbinger of a new wave of innovation in the primary care space. But as the company grew, things began to go wrong—in a big way. Its entry into the insurance business was marred by allegations of fraudulent billing, it faced an exodus of employees claiming a terrible work environment, and its largest investor took it to court claiming financial mismanagement. By last year, the company had withdrawn from the insurance business entirely.

The new foray into the risk marketplace with Aetna looks like a much more traditional play than Zoom+Care’s earlier aspirations. The venture is structured as a shared-savings ACO, with Aetna taking on the insurance end and Zoom+Care deploying its clinics, telemedicine platform, and a narrow-network referral relationship with Legacy Health, a large local hospital system. It will be interesting to watch how the partnership performs as Zoom+Care regains its footing and begins to repair its reputation. The story is a cautionary tale about the “move fast and break things” approach of many disruptors in healthcare—in a business so reliant on relationships (with doctors, payers, employees, funders, and on and on), innovators constantly run the risk of foreign-body rejection by an entrenched and well-developed set of incumbents. It’s probably wise to temper disruption with a measure of collaboration, a lesson Zoom+Care now appears to have learned.

A health system doubles-down on postacute, and doubles in size

With all of the attention being paid to cross-sector M&A in healthcare—CVS/Aetna, Walmart/Humana, and so forth—you might have missed one of the more interesting deals we’ve seen this year so far. Toledo-based ProMedica, a $3B+ integrated health system that operates 13 hospitals, surgery centers, clinics and a health plan across Ohio and Michigan, entered into a complex deal to acquire HCR ManorCare, the second-largest nursing home chain in the US. Along with Toledo-based healthcare real estate investment trust Welltower, ProMedica will acquire ManorCare—which had entered into bankruptcy—and operate its 500 skilled nursing facilities (SNF), nursing homes, home health, and hospice operations across 29 states. By entering into the deal, ProMedica will double in size to $7B in revenue and become the 15th largest not-for-profit health system in the US.

The deal comes on the heels of the insurer Humana’s recent moves into the postacute space. ProMedica has its own Medicare Advantage plan, and acquiring ManorCare sets the system up to be able to mirror Humana’s apparent strategy of managing the cost of senior care by deploying subacute and home-based care approaches in the context of private Medicare coverage.

We’ve worked with many health systems who are actively pursuing partnerships and innovation on the “front end” of the delivery system—retail clinics, urgent care centers, and the like. That space has also gotten a lot of attention from disruptors, who look to bring new care models and technology to the primary care market. Vertical integration has been slower to come to postacute care, which has suffered from a (deserved) reputation of being fragmented, chaotic and underfunded. ProMedica’s acquisition is a big moment for postacute care, and it’s worth watching closely how successful the system will be in integrating the assets it’s acquired and pulling them together into a comprehensive, high-performing senior care platform. Questions abound, but it’s good to see this critically-important part of our delivery system getting significant investment and “disruption.”


A key insight or teaching point from our work with clients, illustrated in infographic form.

The basic hospital business model is built on cross-subsidy—raising price on the commercial side of the business to pay for how little hospitals get paid (relative to cost of care) by public payers. At a 50/50 private-public payer mix, that model was relatively stable. But a number of factors are combining to upend the cross-subsidy model, causing the average hospital margin to decline—precipitously—over the coming decade. The Congressional Budget Office forecasts that, unless hospitals make fundamental changes to their businesses, some 60% of hospitals will be operating in the red by the end of the next ten years. More than any other factor, this basic economic reality creates the most urgent burning platform for the transformation of the traditional hospital model.


What we’ve been writing about this week on the Gist Blog.

Look, it was a busy week. We didn’t get a chance to sit down and write a blog post. We promise we’ll do better next week (hint: our take on freestanding EDs). In the meantime, there’s a ton of great writing on healthcare out there…so we thought we’d give you a few recommendations to check out. (But please come back!)

Here’s whose work we follow most closely:

  • Kaiser Health News has some of the smartest reporters we know, and they’ve basically become the healthcare desk for many of the rest of the nation’s media outlets.
  • The Incidental Economist blog brings together a handful of really, really smart people in academia, who write about the business of healthcare. Worth following each of them individually and reading their work on a regular basis.
  • Vox has quickly become a daily healthcare must-read, and in particular the work of Sarah Kliff. Her ongoing project documenting the impact of high-priced care on consumers is changing the conversation nationally.
  • The Upshot is an occasional feature of the New York Times, focused on data-driven journalism about a wide range of industries including healthcare. You’ll see some familiar names from The Incidental Economist there, as well as other terrific writers.
  • For straight-up, cover-the-coverage aggregation of all of the happenings across healthcare, it’s hard to beat Becker’s Hospital Review. Takes some sorting through, but worth it for the nuggets from local media you wouldn’t otherwise see.


What we learned this week from our work in the real world.

In search of scale for innovations in telemedicine

This week I delivered the keynote address at the American Telemedicine Association annual conference, which brought together 5,000 attendees from around the world to explore the innovations in virtual medicine. Telemedicine has the potential to provide a solution that is not only lower cost but perceived by consumers as more convenient and accessible—and thus “higher value”. I was struck by how the field has evolved from technologies focused on wellness for the “affluent FitBit-er” to solutions focused on the most at-risk patients—taking advantage of the fact that over two-thirds of low-income patients have a smartphone.

The telemedicine market today is largely a set of disconnected point solutions—with a lot of innovation for innovation’s sake. Health systems are well positioned to integrate virtual medicine into a larger, “curated” care platform. However, many of my conversations with doctors and health systems still center on reimbursement. Motivated consumers can already find a range of virtual visit providers, and they’ll pay cash for access. Providers who dwell on lost in-person visits and wait for coverage and a billing code for every virtual visit will be left behind—and lose the larger opportunity to use virtual care to decrease costs and increase patient loyalty.

Pediatric programs at the forefront of industry challenges

This week I made my annual pilgrimage to speak at the gathering of leaders of the top pediatric programs in the country. These organizations represent the very highest-end of specialty care for sick kids in the US and Canada. While they have the same challenges as any academic medicine program, they face a generation of consumers that the rest of us in healthcare haven’t seen much yet—the Millennials, who are the parents of most of their patients. In some ways, pediatric programs are canaries in the coal mine for the rest of healthcare—facing starkly varying consumer segments, a new generation of activist purchasers, and intense pressure to innovate the funding model. Lots to learn from these leaders as they forge the way ahead.


We would’ve worked harder, but we watched this instead.

Here’s a confession: when we’re on the road with clients, we both sometimes steal a spare hour to check out the local art galleries…we’re art geeks! So it was with some glee that we discovered that PBS has launched a new remake of Kenneth Clark’s classic 1969 art history series Civilization, now with an extra “s” on the end, for “spectacular.” The 9-part series, made in collaboration with the BBC, is narrated by two titans of the field: Mary Beard and Simon Schama. Ranging from ancient Mesopotamia to classical China to Renaissance Italy, it’s a sweeping survey of the history of art, and how the artistic impulse lies at the heart of our conception of civilization. And it’s gorgeous to look at. Highly, highly recommended.


We said it, they quoted it.

“Gist Healthcare President at ATA: Why 2018 is the Year of the Disruptor in Healthcare”
MedCity News; April 30, 2018.

“As Bielamowicz highlighted, the healthcare field adjusts based on everything from policy changes to the aging population.

‘As the population ages, the kind of care patients need shifts as well,’ she said during an April 30 keynote session, adding that the baby boomer population is moving from a ‘repair and replace’ era of their lives to a ‘maintain and decline’ era.”

“A Doc from the Big Box? Walmart Wants to Bring You Healthcare at Home”
Colorado Public Radio; May 3, 2018. (Link includes audio interview.)

“Big retailers like CVS and Walmart are looking for a foothold in the industry, while existing companies move to consolidate, said Chas Roades, co-founder and CEO of Gist Healthcare in Washington D.C.”


Stuff we read this week that made us think.

GAO takes stock of CMMI innovation models, while many ACOs threaten to bail 

The Government Accounting Office (GAO) released a report last week evaluating the performance of the 37 payment reform and care delivery innovation models tested to date by the Center for Medicare & Medicaid Innovation (CMMI)The programs range from disease-specific care management programs to advanced accountable care (ACO) models to statewide multipayer innovations. GAO rated the models’ performance against three CMMI performance criteria, and found decidedly middling results: ACOs fell short of many performance goals, and only four innovation models met both cost and quality goals. Moreover, only two CMMI programs have been certified for expansion based on performance: the Pioneer ACO program, which provided an accelerated path to downside risk, and a YMCA-based diabetes program. While generating savings for CMS, the Pioneer ACO program received mixed feedback from providers, and half of the 32 original participants dropped out in the first three years.

As we discussed recently, ACOs have yet to generate real savings for Medicare. With most providers still in upside-only Track 1, there is little motivation to find real savings or truly transform care. Results do show that ACO programs with downside risk can generate aggregate savings—but providers remain reticent. A survey out this week reported that 71 percent of ACOs would drop out if forced to take downside risk, and the finding was coupled by a request from the National Association of ACOs to allow additional years of upside-only participation the first wave of ACOs, who joined in 2012 and 2013. While there are many structural issues with the ACO program (data sharing, benchmarking, performance measurement, just to name a few), it is highly unlikely that long-running Track 1 ACOs will suddenly begin to generate savings if given a few more years to operate free of downside risk. CMMI would be better served to create a faster path to downside risk for motivated ACOs and let those who aren’t willing to move more quickly exit rather than lingering on with little measurable return.

The mounting evidence against high-deductible health plans

In today’s New York Times, the veteran (and brilliant) healthcare reporter Reed Abelson has a new and moving piece on the impact of high-deductible health plans on women living with breast cancer. Reporting on the findings of a recent study in the Journal of Clinical Oncology, Abelson writes that the financial burden of high-deductible plans has forced many women to delay diagnostic testing and put off treatment after receiving a diagnosis of breast cancer. Early treatment is particularly critical for breast cancer patients, yet the incentives created by high-deductible plans often force women to ration their own access to care, potentially jeopardizing survival rates. As Abelson reports, more than half of those covered by employer-sponsored insurance face a deductible of at least $1,000. And as other studies have shown, very few Americans have the financial resources to cover that level of expense, even for essential medical care—such as treatment for breast cancer.

The purported rationale for high-deductible plans is to give patients “skin in the game,” putting in place an incentive to make better choices and reduce unnecessary spending. But there isn’t a lot of “discretionary” spending involved in treatment for breast cancer—or for many other conditions. The article again illustrates a stark reality faced by most Americans: we are just one diagnosis away from financial catastrophe. It’s increasingly clear that the employer strategy—now common—of using high deductibles as a blunt instrument to reduce spending is a terrible way to address rising care costs. Employers, who’ve watched health plans and health providers slug it out in a multi-round heavyweight fight to control costs, have now thrown employees into the ring—untrained, unarmed, and unprepared to deal with the high stakes they face. As the Times article illustrates, we are being asked to gamble with our health.

Remembering an (actually funny) comedic icon

Don’t know if you heard, but the White House Correspondents’ Dinner was last weekend, and everyone involved lost their minds. At issue was the stand-up routine performed by comedian Michelle Wolf, which was either tasteless and vile, or a brave defense of the First Amendment, depending on your perspective. But we were recently reminded that it used to be possible to be both sharply political and gracefully hilarious: the incredible (but now largely forgotten) satirist and mathematician Tom Lehrer turned 90 years old last month.

If you aren’t familiar with his 1960s-era comedic work, well…you’re in for a treat. Here’s the article in the journal Nature celebrating his birthday—likely the only comedian ever covered by that august publication. And here’s a whole YouTube channel devoted to his work—much of which directly took on political orthodoxy and the military-scientific-industrial complex of the era. Asked once why he gave up political comedy for a quiet career teaching mathematics, Lehrer characteristically said, “Things I once thought were funny are scary now. I often feel like a resident of Pompeii who has been asked for some humorous comments on lava.” Sounds about right.

That brings us to the end of another Weekly Gist. Thanks so much for taking the time to read it. If you’ve found it valuable, we’d love for you to share it with a colleague. And if you receive it from a friend, please consider subscribing!

We hope to see you out on the road soon (or maybe in the Mos Eisley cantina?), but in the meantime, please let us know if there’s anything we can do to be helpful in your work. You’re making healthcare better—we want to help!

Best regards,

Chas Roades
Co-Founder and CEO

Lisa Bielamowicz, MD
Co-Founder and President